New Delhi: In a relief to employees, the Employees’ Provident Fund Organisation (EPFO) has provided relief by restoring the previously available ‘higher pension’ option under the Employees’ Pension Scheme (EPS). The decision brings munch needed relief to the employees who had opted to contribute to their pension based on their full basic salary before September 2014.
EPFO’s move would clear the long-standing confusion. However, this new change will benefit a select of employees will benefit from it.
In September 2014, the government fixed the pensionable salary (Basic + DA) limit at Rs 15,000 per month. The minimum monthly pension was fixed at Rs 1,000. This change led to the maximum EPS pension limited to around Rs 7,500 per month. The employees with a basic salary of over Rs 15,000 were affected, as their pension was calculated based on the prescribed limit instead of their actual salary.
In the latest clarification, provision that existed before September 2014 has been reinstated. This would allow employees to contribute to their pension based on their actual basic salary and dearness allowance (DA).
People who opted for the “higher pension” option before September 1, 2014 would be the beneficiary.
The employees have to take the approval consent of the employer to choose higher pension option.
How do EPS and EPF contributions work?
According to EPFO rules, both the employee and the employer contribute 12 per cent of the basic salary + DA to the provident fund. Out of the employer’s contribution, 8.33% (or a maximum of Rs 1,250) goes to the EPS fund, from which monthly pension is paid after retirement.
The Employees’ Provident Fund Organisation has keep the interest rate on employees’ provident fund (EPF) deposits at 8.25% for FY26.
EPFO 3.0
The government has planned to implement EPFO 3.0 which is aimed at enhancing services to members and establishments by introducing industry standard Core Banking System enabled services. The update Provident Fund service will reduce paperwork, making it easier for members to manage their social security accounts, faster claims processing and managing all member services from a single unified platform.
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